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Tuesday, April 24, 2007

SSKI - Sasken's Q4FY07 results (Outperformer): Disappointing quarter; Outlook on product business intact


Sasken (CMP: Rs526)

Mkt Cap: Rs15bn; US$361m

Sasken's Q4FY07 results were disappointing. Revenues grew 3.3% qoq (+5.7% in $ terms) to Rs1.35bn lower than our expectation of Rs1.43bn. Services revenues (93.6% of total) remained broadly flat at Rs1.27bn (+2.1% qoq in $ terms) – we expected 6.1% qoq growth – while recently acquired Botnia (~25% of services revenues) witnessed 18% qoq growth in $ terms, revenues ex Botnia declined sequentially. The margins in services business declined sharply by 220bp to 20.7% due to rupee appreciation, lower utilization and higher proportion of revenues from Botnia, having lower margins. The company expects slower growth in network infrastructure business (40-50% of services revenues), while Botnia and terminal devices business are witnessing good growth. During FY07 services business reported a strong organic growth of 33.5%yoy in $ terms. Products revenues at Rs87m were in line with our expectations, but the royalty component was below street expectations. Developments on product side during the quarter include two new Design Ins (Lenovo being one of them) and launch of new handsets by NTT DoCoMo carrying Sasken's Multimedia Solution. We have downgraded both revenue and earning estimates for FY08 and FY09 by ~10% to account for rupee appreciation and slower growth in services business. The stock price has gone up by ~10% in April 07 till date. We expect stock to Outperform over 12-18 month horizon as the outlook on growth potential in product business remain intact - Outperformer.

SSKI - Sasken's Q4FY07 results (Outperformer): Disappointing quarter; Outlook on product business intact